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A look ahead at what Pritzker wants to do

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The Chicago Democrat said he’s also “looking seriously” at an idea from the Center for Tax & Budget Accountability to issue a large pension obligation bond issue and use it to pay down billions of dollars of pension debt more quickly than the state now is scheduled to do, hopefully saving money in the long run by paring interest costs.

Pritzker said many details will be resolved by his transition financial team, which includes former Illinois Comptroller Dan Hynes, Civic Federation President Laurence Msall, former Senate GOP Leader Christine Radogno and CTBA chief Ralph Martire.

Other early priorities will include raising the minimum wage to $15 an hour after a transition period, “lowering the cost of health care”—Pritzker has proposed allowing anyone to buy into the [Medicaid] system—and expanded aid for college students. Pritzker said the minimum-wage hike would include a feature designed to “relieve the burden on small business.”

Also on the list for “early in our administration”: a big capital program for roads, bridges, transit and related work. The new governor is under some pressure to raise gasoline taxes to pay for such work, but did not indicate where he would end up.

Pritzker floated the CTBA’s idea during the campaign, then backed away from it and is now floating it again. The CTBA’s plan proposes borrowing $11.2 billion over eight years. I guesstimated the average annual cost of that plan at $1.7 billion, but that can be altered to ease the first-year cost.

Raising the minimum wage over time will also drive up state government costs to pay for caregivers, university student workers, etc. It’ll be interesting to see how he intends to shield small businesses.

And, of course, a capital plan pretty much requires a new revenue source. Pritzker has talked about using marijuana tax money to pay for that, but he told Greg that, with the “artificial progressive income tax” off the table, pot money would likely be used to help balance the overall state budget. I figure a gas tax hike is probably the better bet for funding a capital plan, but one never knows.

…Adding… Our resident pension expert RNUG explains the CTBA proposal in comments…

Think a number of you are misunderstanding the plan. Here’s a homeowner example to put it in perspective.

Right now, we have an adjustable mortgage with steadily increasing payments and some balloon payments at the end. Because it started as a teaser rate, we aren’t even paying the full principal and interest payment; heck, we aren’t even covering the full interest payment.

What is being proposed is switching to a standard flat mortgage payment schedule. That will stop the debt from growing, which means the needed payments will stop increasing every year. But, and it is a BIG but, we need to start paying a lot more right now. So, to minimize the impact of the higher immediate payments, what is being proposed is to borrow the difference between the current payments and the new payments. This makes it possible to shift to the flat mortgage payment without a huge tax increase. You will still need a bit of money to switch, but that will be repaying the bonds over 20 (or whatever) years.

In the long run, it will save the State money. In the short term, it frees up NO existing money; all it does is stop future pension payments from taking cash away from other programs.

It’s not a bad thing, but all it really is is the first step on a 20 year journey.

posted by Rich Miller
Friday, Nov 9, 18 @ 12:11 pm

Comments

The pension bond obligations will be a disaster for the state government when a recession hits.

Bonding greatly decreases budget flexibility since those have to be paid, and for a state like us that is always on a knife’s edge budget wise it creates a real risk.

I am not sure how the state is going to weather the recession that will happen some time in the next few years. We are at the end of the longest business expansion in history, and the budget is still not structurally balanced.

What on earth is going to happen here during a down time when we couldn’t even get the budget straight in the best of times?

Comment by Anon Friday, Nov 9, 18 @ 12:25 pm
Let the whiz kids run the numbers at least on a POB.

But keep in mind that the GOP fiscal conservatives in DC — in a growing, low-unemployment economy — thought it was smart for the federales to double borrowing this year, and for years to come, to pay for those tax breaks.

You know, like using your credit card at the ATM so you can drink more after midnight.

The juice will be steeper than anticipated even a year ago.

Comment by wordslinger Friday, Nov 9, 18 @ 12:28 pm
Charge trucks to use the roads. We track their miles already. They cause far more damage than their fees and gas taxes cover. It’s a good user fee model.

Comment by Dan Johnson Friday, Nov 9, 18 @ 12:28 pm
Here’s where the wonks come in, lay out the numbers, give the scenarios, and let the politicos find what they need from the numbers.

Here’s where some governing begins.

Comment by Oswego Willy Friday, Nov 9, 18 @ 12:31 pm
As long as the bond rate, which is a fixed rate of interest is lower than the lost investment interest of not paying the pension debt on time, then the state will come out ahead.

But one concern may be what the bond rating agencies think about this. If bond rating agencies are good with this and raise Illinois’ bond rating when the pension debt goes down, then this will be a net positive.

Comment by A Jack Friday, Nov 9, 18 @ 12:36 pm
The important thing is not to tax or regulate the highly profitable Casino and Liquor monopolies. Glad to see priorities are in their proper place. Schools have bake sales while Casino rake it.

Comment by Al Friday, Nov 9, 18 @ 12:37 pm
So far the governor-elect has gone three days without blaming anyone else for anything.

Comment by Nick Name Friday, Nov 9, 18 @ 12:37 pm
Well the gas tax has been the same for 25 years ago look like a good place to start

Comment by Anonymous Friday, Nov 9, 18 @ 12:38 pm
All of this isn’t that shocking. Anyway, Illinois Democrats must be aware that some are hoping for a federal bailout.

https://www.cleveland.com/politics/index.ssf/2017/12/sherrod_brown_has_a_plan_to_he.html

Comment by Steve Friday, Nov 9, 18 @ 12:38 pm
Sure Steve a federal bailout…..dreamer. I would think Trump regards Illiois as one of his least favorite states period.

Comment by Anonymous Friday, Nov 9, 18 @ 12:44 pm
Steve-

There is a much better chance that the federal government passes a law allowing states to declare bankruptcy than there is them passing a law to put the nation the hook for a trillion dollars or so worth of unfunded state pension funds primarily in a few (California, Illinois, Conn.)very blue states.

Comment by Anon Friday, Nov 9, 18 @ 12:44 pm
What we are gaining here is the compounding of interest in the retirement funds that was lost when the state didn’t pay its share. I wish they had done this when issued bonds were paying fractional interest and Illinois’ bond rating was much higher. But Bruce…..

One thing for sure, Pritzker is trying new Constitutional ways of dealing with the pension debt. And that is refreshing.

Comment by A Jack Friday, Nov 9, 18 @ 12:45 pm
It seems unlikely to me that taxes on things like marijuana or video gambling would pay for all the spending Pritzker has proposed. I think Senator Cullerton went on NPR the other day to say that we shouldn’t think of these things as a panacea for our budget woes. I would not mind if maybe Mr. Msall proposed his spending cap to the governor which the Civic Federation has included in its road maps for years now. Just to reassure us voters that it will not get out of control.

Comment by Matt Drabik Friday, Nov 9, 18 @ 12:45 pm
Gas at the pump out in California is over $4 in some areas. Many Illinois voters probably wouldn’t mind paying something closer to California prices. It’s not like there will be a tax revolt or something.

https://www.sacbee.com/news/local/transportation/article219874070.html

Comment by Steve Friday, Nov 9, 18 @ 12:45 pm
@Steve, you know what a slippery slope fallacy is? You just gave a good example of one. “If we raise the gas tax AT ALL, we’ll obviously end up almost doubling the cost of gas!”

Comment by Perrid Friday, Nov 9, 18 @ 12:50 pm
== What on earth is going to happen here during a down time (?) ==

Probably the same thing that happened before, we’ll skip pension payments.

Comment by Roman Friday, Nov 9, 18 @ 12:50 pm
To Anon:
If you get a Democrat in the White House by 2025 which is a highly reasonable assumption: anything is possible. I’m not saying you are wrong. I’m just saying many politicians are angling for a bailout. A federal bailout is as probable right now as changing the pension provision in the Illinois state constitution. But, during/after the next recession who knows?

Comment by Steve Friday, Nov 9, 18 @ 12:53 pm
Perhaps we can sell the pot at state-owned stores rather than just skim some tax off the top.

Comment by Anonymous Friday, Nov 9, 18 @ 12:55 pm
I don’t see either bankruptcy or bailout on the horizon. State bankruptcy has always been unconstitutional. A conservative Supreme Court is not going to take action to blow a big hole in the municipal bond market. After all, what would then stop any state from going crazy with spending and then declaring bankruptcy? Other states have managed to dig themselves out, and with the right leadership, Illinois can as well.

Comment by A Jack Friday, Nov 9, 18 @ 12:56 pm
Exempting small businesses means exempting the vast majority of employees. Looks like JB wants to have his cake and eat it too.

Comment by Not It Friday, Nov 9, 18 @ 12:57 pm
@Anonymous, lol, can you imagine the heads exploding from the the government owning a business (Communism[banned exclamation point]) and also tax dollars going toward buying recreational mind altering drugs? Or, haha, if we take it a step further and have a state run casino? This made my day.

Comment by Perrid Friday, Nov 9, 18 @ 1:03 pm
Actually, if JB gets away with exempting small businesses a lot of big companies would go along: this locks out a lot of future competitors. It would put a clamp on how much many small companies could grow.

Comment by Steve Friday, Nov 9, 18 @ 1:09 pm
Think a number of you are misunderstanding the plan. Here’s a homeowner example to put it in perspective.

Right now, we have an adjustable mortgage with steadily increasing payments and some balloon payments at the end. Because it started as a teaser rate, we aren’t even paying the full principal and interest payment; heck, we aren’t even covering the full interest payment.

What is being proposed is switching to a standard flat mortgage payment schedule. That will stop the debt from growing, which means the needed payments will stop increasing every year. But, and it is a BIG but, we need to start paying a lot more right now. So, to minimize the impact of the higher immediate payments, what is being proposed is to borrow the difference between the current payments and the new payments. This makes it possible to shift to the flat mortgage payment without a huge tax increase. You will still need a bit of money to switch, but that will be repaying the bonds over 20 (or whatever) years.

In the long run, it will save the State money. In the short term, it frees up NO existing money; all it does is stop future pension payments from taking cash away from other programs.

It’s not a bad thing, but all it really is is the first step on a 20 year journey.

Comment by RNUG Friday, Nov 9, 18 @ 1:19 pm
=== The important thing is not to tax or regulate the highly profitable Casino and Liquor monopolies. Glad to see priorities are in their proper place. Schools have bake sales while Casino rake it. ===

1. Let’s not pretend they aren’t taxed and regulated. If not taxed at the right amount, that’s a discussion.

2. Explain how “regulation” leads to revenue.

Comment by Just Observing Friday, Nov 9, 18 @ 1:25 pm
- RNUG -

I’d spring for the Diet Coke and Rum for ya if ya get 30 min or so with the budget/pension policy wonks.

It’d be like… having one of our own as a made member….

Comment by Oswego Willy Friday, Nov 9, 18 @ 1:27 pm
-OW-, that’s the wife’s drink when she rarely has one.

They don’t need me. It’s Ralph’s plan; he’s on the committee.

Comment by RNUG Friday, Nov 9, 18 @ 1:30 pm
RNUG for the win. That is a great explanation!! Thank You!

Comment by I am legend Friday, Nov 9, 18 @ 1:35 pm
RNUG: translator of finance language into everyday English. Nice work.

Comment by Duke of Normandy Friday, Nov 9, 18 @ 1:42 pm
- RNUG -

My apologies on the drink, i thought that was yours in a discussion we had once.

I know it’s Ralph’s. Like I said, “having one of our own” kinda deal.

Comment by Oswego Willy Friday, Nov 9, 18 @ 1:44 pm
A gas tax is the only tax hike I support raising. It really should have been done by now, and I am a guy commuting over 300-miles a week. It was last raised in 1993. Since then the cost of road repair/construction has increased, along with vehicle fuel efficiency. This has created a double whammy for IDOT to build and repair roads.

Comment by Yup Friday, Nov 9, 18 @ 1:45 pm
Many Illinois voters probably wouldn’t mind paying something closer to California prices.

Ask Toni P about that. She thought they’d not mind paying more for pop either.

And gas is way more important to voters than pop!

Comment by Fav Human Friday, Nov 9, 18 @ 1:51 pm
What is most amazing is that Martire has been ignored for so long. Republicans and Democrats. Finally he is gettig a real listen.

He could have saved us billions.

Comment by JS Mill Friday, Nov 9, 18 @ 2:00 pm
===they’d not mind paying more for pop===

Pop prices don’t modulate on a daily basis, either.

Comment by Rich Miller Friday, Nov 9, 18 @ 2:03 pm
==Think a number of you are misunderstanding the plan.==

I think you are as well. The plan lowers the target funding from 90% to 70%, which means…

==What is being proposed is switching to a standard flat mortgage payment schedule.==

…at the end of this standard flat mortgage schedule, you’ve only paid off 70% of your home.

Not that I don’t think more money upfront is a bad idea, but that money should come from the current budget.

Comment by City Zen Friday, Nov 9, 18 @ 2:08 pm
==Since then the cost of road repair/construction has increased, along with vehicle fuel efficiency. ==

And the average automobile weight has increased.

Comment by City Zen Friday, Nov 9, 18 @ 2:10 pm
Since the affluent have a choice around gas taxes
please be careful with their application. My high
count of Teslas for a day in western DuPage was eight. To over burden those with the least options with the
most cost maybe human nature but we do want to work against it.

Comment by Illinoisvoter Friday, Nov 9, 18 @ 2:16 pm
===My high count of Teslas for a day in western DuPage was eight===

lol

And your point is what? We can’t raise gas taxes because a tiny handful of upper-income people own shoddily made Teslas? Seriously?

Comment by Rich Miller Friday, Nov 9, 18 @ 2:19 pm
JB can start with submitting a budget and paying the state’s bills.

Comment by Anonymous Friday, Nov 9, 18 @ 2:30 pm
===but that money should come from the current budget.===

So where are you cutting $2.5 billion from in 2019?

Comment by njt16 Friday, Nov 9, 18 @ 2:31 pm
I wonder where an AFSCME contract is on that priority list? (Not snark, just wondering.)

Comment by Skeptic Friday, Nov 9, 18 @ 2:46 pm
=JB can start with submitting a budget and paying the state’s bills.=

No way- Conservatives will oppose this as “new spending”.

Comment by Likely Blocked Friday, Nov 9, 18 @ 2:58 pm
For the roads, raise the gas taxes and include an index to inflation. To deal with the increase in electric vehicles, raise the registration fees on electric and hybrid vehicles. Gas taxes provides revenue from out of state drivers using the roads. registration or tire tax fees won’t cover the out of state cars or trucks using the roads.

Comment by HistoryRepeats Friday, Nov 9, 18 @ 2:58 pm
Rich, RNUG, anybody know how the 2003 POB is doing? Last I heard was a couple years ago and the arbitrage was still positive.

Comment by Arthur Andersen Friday, Nov 9, 18 @ 2:59 pm
== Pop prices don’t modulate on a daily basis, either. ==

Just weekly, depending on which brand is having a sale.

Comment by RNUG Friday, Nov 9, 18 @ 3:16 pm
-Shoddily made Teslas-

Lol and spot on, Rich. I see one here in Springfield with Soviet Union build quality. You could toss a cat through some of the panel gaps.

Comment by Arthur Andersen Friday, Nov 9, 18 @ 3:28 pm
Possibly not related but I always wondered what Rauner’s long game was that could in any way explain his actions, especially the budget impasse. Did he want to make Illinois the test model for quasi-state bankruptcy, especially to address the pension issue?

Comment by Res Melius Friday, Nov 9, 18 @ 4:08 pm
It is good that Ralph Martire will be on JB’s transition financial team. Ralph Martire is one who actually knows what he is talking about when it comes to Illinois state employee pensions and maintaining constitutionality with the pension protection clause in Illinois state’s constitution.

Comment by Williamson County resident Friday, Nov 9, 18 @ 4:19 pm